New guidance on pricing practices in consumer dealings

International Trade Alert

The Chartered Trading Standards Institute has, at the request of the Department for Business, Energy and Industrial Strategy (BEIS), published new guidance aimed at preventing misleading and confusing pricing tactics used by some traders in dealings with consumers. The guidance replaces the Pricing Practices Guide published in 2010 by BEIS's predecessor, the Department for Business, Innovation and Skills, and provides a very useful and practical summary of the rules around pricing practices imposed on traders (and enforced by Trading Standards and the Competition and Markets Authority) under the Consumer Protection from Unfair Trading Regulations 2008 ("Regulations").

The guidance is applicable to any trader (ie business) which sells goods and/or services to consumers (a consumer being defined as an "individual acting for purposes that are wholly or mainly outside…[their] business") in the UK and across all platforms used for business-to-consumer commercial practices. This includes distance contracts (eg online and telephone contracts) and any other channels used to sell or promote goods/services to consumers.

Whilst it is not, in itself, legally binding, the guidance outlines the approach that enforcement bodies are likely to take in assessing compliance with the Regulations and also provides examples of good and bad practices to assist traders in assessing whether their pricing practices are likely to fall foul of the Regulations.

Key points

The overarching principle of the guidance is that pricing information should be sufficiently clear and understandable so as to ensure that consumers have confidence that they can, when making their decision to purchase goods or services, rely on the information that traders provide.

Specific practices which are examined in the guidance and information as to how the practices may fall foul of the Regulations are as follows:

Use of reference prices - these are price promotions which aim to demonstrate good value by referring to another price (for example an after-promotion price, introductory price, recommended retail price or a competitor's price).

It is important that the basis of any comparison is made clear to consumers and not to make unfair price comparisons. If trader's pricing practices (explicitly or by implication) indicate a saving against another price the trader must be able to demonstrate that the quoted saving is genuine and is therefore fair.

Time limited offers - time-limited offers are offers which suggest that a product/service is only available on certain terms for a limited time.

Where a product will genuinely only be available on particular terms for a limited time, and consumers need to act quickly to take advantage of the offer, the date the offer ends is very likely to be material information for consumers. Accordingly, the end date should be provided in a manner that is clear, intelligible, unambiguous and timely and should not be changed unless circumstances arise which were not reasonably foreseeable at the time that the promotion commenced.

Volume offers - volume offers are price promotions that aim to demonstrate good value by reference to the volume, weight or amount of a product, or the purchase of a combination of different products.

Traders should not take advantage of the fact that many consumers will not calculate for themselves whether price promotions actually offer better value (for example, whether the price of a combination offer is in fact cheaper than the total cost of buying the same items separately). Any use of pre-printed value claims on pack such as ‘Bigger pack - better value’ should be objective, accurate and capable of justification.

Use of 'free' - these promotions suggest that the goods / services are available without consumers paying any price for them.

Traders must not use the term ‘free’, or similar phrases, unless the consumer genuinely pays nothing other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery. However receiving the free product can be conditional on the purchase of a product provided this is made clear (eg free wallchart if you buy a daily paper), but. the cost of the free item should not be recovered by reducing quality or composition or inflating the price of the product that is to be paid for. Traders should not describe a part of any package as ‘free’ if it is already included in the package price.

Similarly traders should not describe a service as free if it is not free for consumers that choose not to subsequently enter into an agreement with the trader after receiving the service - for example, you should not use the terms ‘free valuation’ or ‘free call-out’ if there is a one-off charge for a consumer who decides not to proceed with a subsequent purchase or agreement.

Additional Charges - charges of this sort include fixed compulsory charges (ie which all consumers have to pay), charges for a component of the product or service that is compulsory but where there is a range of possible charges for that compulsory component or additional charges rendered for an optional product or service.

Compulsory charges may vary in accordance with the consumer’s choices or circumstances. Even if the charge may vary, it is still compulsory if the consumer must always pay something extra for it (eg a delivery charge might depend on the consumer’s location or the size/weight of the product). Where a compulsory charge may vary, traders should alert consumers to the charge at the outset.

It is not necessary to include an optional charge within the up-front price. However, the charge must be genuinely optional. Charges that are, in reality, an unavoidable part of the main purchase are not optional and should not be presented in such a way as to suggest that they are.

'Up to' and 'From' Claims - examples of these types of pricing practices are where, for example, a shop offers 'up to 50% off'.

Care should be taken that general notices such as ‘Up to half price sale’ or ‘From 50% off’ are not misleading and reflect the reality of the offer. Traders should only make claims such as this if the maximum reduction quoted applies to a significant proportion of the range of products that are included in the promotion. The overarching principle in this regard is that a prominent general claim of a maximum discount should represent the true overall picture of the price promotion.

Subscriptions - this sort of offer requires that repeat payments are made (eg weekly, monthly, yearly).

The extent of the consumer’s financial commitment must be set out clearly and prominently from the outset, and the consumer’s express consent to any additional payments should be secured before they are charged. Traders should not mislead consumers about the extent of their future commitment in order to secure an agreement.

Action points for traders

Traders who regularly deal with consumers should comprehensively review their pricing practices for compliance with these new guidelines to mitigate any risk that enforcement bodies may take action for any breaches of consumer law. As well as potential reputational damage, the criminal penalty for an offence under the Regulations is, on summary conviction, a fine or, on indictment, a fine and/or up to two years imprisonment.

For more information please contact the authors.

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DLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning us to help clients with their legal needs around the world.